Another Analyst Has Slapped a ‘Sell’ on Facebook

Can Facebook find a way to deliver a positive mobile advertising experience?

The punches keep coming for Facebook.

BTIG analyst Richard Greenfield has placed a “sell” rating on Facebook and set a price target of $16 in response to growing concerns over Facebook’s biggest challenge: you guessed it, mobile.

Facebook is trading at around $20.70 today, down from its IPO price of $38 earlier this year, thanks to concerns about how well Facebook can make money from its mobile users. It’s often cited as a major risk for Facebook – traditional advertising-based models don’t necessarily work for a small screen, like that of the iPhone, which means Facebook has to find more creative ways to monetize mobile users effectively.

Facebook now has more than 600 million mobile users — now 60% of its total user base. In June 2012, Facebook had 543 million mobile users of its 955 million monthly active users, which is about 57% of its total user base. Its share of users checking the site through its phone is still growing.

It’s a fine line between monetizing you mobile product and annoying your users. Here’s Greenfield’s main point:

While we maintained our Neutral at the time, we have grown increasingly concerned with Facebook’s mobile monetization approach. We see a growing tension between the Facebook user experience and monetization, particularly as the collapse of payment revenues has left Facebook with only one major “lever to pull” – advertising. While mobile ads perform significantly better than desktop ads, the outperformance is driven by how much of the screen they occupy (more annoying) and “fat-fingers” (accidental clicks).

The last thing Facebook needs is to upset its users more, because Facebook has to hold onto its users and continue to grow long-term. So sacrificing user experience in the short term for monetization isn’t necessarily the best approach. Unfortunately, that will also negatively impact 2013/2014, Greenfield says, but says “we believe it would lead to a far more vibrant network of users. Facebook should simply not allow ads with poor creative, deceptive pursuit of Likes and/or those with incessant repetition.